The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Tails, Fears, and Risk Premia
Published: 11/14/2011 | DOI: 10.1111/j.1540-6261.2011.01695.x
TIM BOLLERSLEV, VIKTOR TODOROV
We show that the compensation for rare events accounts for a large fraction of the average equity and variance risk premia. Exploiting the special structure of the jump tails and the pricing thereof, we identify and estimate a new Investor Fears index. The index reveals large time‐varying compensation for fears of disasters. Our empirical investigations involve new extreme value theory approximations and high‐frequency intraday data for estimating the expected jump tails under the statistical probability measure, and short maturity out‐of‐the‐money options and new model‐free implied variation measures for estimating the corresponding risk‐neutral expectations.
Short‐Term Market Risks Implied by Weekly Options
Published: 02/23/2017 | DOI: 10.1111/jofi.12486
TORBEN G. ANDERSEN, NICOLA FUSARI, VIKTOR TODOROV
We study short‐maturity (“weekly”) S&P 500 index options, which provide a direct way to analyze volatility and jump risks. Unlike longer‐dated options, they are largely insensitive to the risk of intertemporal shifts in the economic environment. Adopting a novel seminonparametric approach, we uncover variation in the negative jump tail risk, which is not spanned by market volatility and helps predict future equity returns. As such, our approach allows for easy identification of periods of heightened concerns about negative tail events that are not always “signaled” by the level of market volatility and elude standard asset pricing models.